USD/CAD – Canadian Dollar Remains Range-Bound

The Canadian dollar continues to have a quiet week, as USD/CAD trades at 1.3940 in Tuesday’s European session. In economic news, the markets are awaiting US Final GDP. An unexpected reading could shake up the lethargic pair. Today’s other important event is US Existing Home Sales. There are no Canadian events on the schedule, but Wednesday is busy, with Canada releasing Core Retail Sales and GDP.

The Canadian dollar continues to nosedive, and the key 1.40 level is within striking distance. The currency has lost a remarkable 600 points against the US dollar in the month of December. Oil prices bear much of the blame for the Canadian currency’s woes, as the commodity-based currency is heavily dependent on the price of commodities such as oil, and as oil prices have plunged, the Canadian dollar has taken a beating. Last week’s Federal Reserve rate hike has added to the loonie’s troubles, and USD/CAD touched above the 1.40 line last week, the first time this has occurred since May 2004. Traders should be prepared for the Canadian dollar to continue to decline, as there is little reason to expect a turnaround from the currency anytime soon.

The US Federal Reserve took the plunge after months of standing on the sidelines, and raised interest rates by 0.25 percent last week, the first upward move since June 2006. The Fed dropped a broad hint in its October policy meeting about a rate hike before the end of 2015, and predictably, investors and traders were busy trying to guess whether the Fed would indeed press the rate trigger. To the credit of Fed chief Janet Yellen and her colleagues, the Fed put into place a carefully-crafted strategy, sending a steady of stream of signals that it was intending to tighten monetary policy, if economic conditions remained positive. This gave the markets ample time to price in a rate hike, and currency market volatility was not excessive after the US rate hike, the first in almost 10 years. Although a hike of 0.25 percent is expected to have limited economic impact, the psychological aspect of the rate move cannot be overemphasized, as the Fed has given the US economy a critical vote of confidence. As well, this move is expected to be the first in a series of incremental rate hikes over the course of 2016.

USD/CAD for Tuesday, December 22, 2015

USD/CAD December 22 at 10:45 GMT

USD/CAD 1.3941 H: 1.3965 L: 1.3927

USD/CAD Technical

• USD/CAD has been flat in the Asian and European sessions.
• The round number of 1.40 remains a weak resistance line and could be tested in the North American session.
• 1.3865 is an immediate support level.
• Current range: 1.3865 to 1.40

Further levels in both directions:

• Below: 1.3865, 1.3757 and 1.3640
• Above: 1.40, 1.4165 and 1.4310

OANDA’s Open Positions Ratio

USD/CAD ratio is unchanged, reflective of the lack of movement from the pair. Short positions have a commanding majority (65%), indicative of trader bias towards USD/CAD reversing directions and moving lower.

USD/CAD Fundamentals

Tuesday (Dec. 22)

• 13:30 US Final GDP. Estimate 1.9%
• 13:30 US Final GDP Price Index. Estimate 1.3%
• 14:00 US HPI. Estimate 0.4%
• 15:00 US Existing Home Sales. Estimate 5.32M
• 15:00 US Richmond Manufacturing Index. Estimate -1 point

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.